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Abercrombie & Fitch boost earnings in Q3, thanks to fewer discounts

Abercrombie & Fitch Co is heading out into the light, well almost.

Fewer discounts helped the turn-around US teen retailer more than double its earnings in Q3 and its Hollister brand is gaining sales traction too. Its shares climbed 25% to $24.37 in Friday trading, the biggest one-day percentage gain in three years.

But hold on. Overall sales still declined 4% to $878.6m and were flat currency neutral. Comps, meanwhile fell 1%, down 5% at its core signature banner.

Meanwhile, executive chairman Arthur Martinez added: “Given that some of our mall-based competitors have seen inventory backup, our expectation is that the promotional drumbeat is going to be very intense,” he told the Wall Street Journal.

Q3 profits jumped to $41.9m/60 cents per share from $18.2m/25 cents a year ago. Earnings, adjusted for non-recurring gains, were 48 cents, way ahead of the 19 cents analysts had expected.

Martinez said results were driven by “a conscious strategy to wean ourselves off heavy levels of promotions.”

“Consumers responded to our full-priced products, and we were able to reduce the number and intensity of promotions,” Martinez said.

As a result, gross margin for the quarter increased to 63.7% from a year-earlier 62.2%.

As for the improving Hollister, comps rose 3% and that marked the banner’s first comps gain since January 2012.

Shoppers, particularly women, responded to new Hollister merhcandise, which included tops with more colour, design and fashion, the retailer said.

The retailer expects overall comp sales will be flat in Q4, an improvement from last year, when they fell 10%. Gross margin rate is expected to be roughly flat to last year on a constant currency basis. Operating expense tare also expected to be flat to last year.

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